Shiseido Drops After Unexpected Loss on U.S. Unit: Tokyo Mover

Shiseido Co., Japan’s biggest cosmetics maker, fell the most in more than two months in Tokyo trading after reporting its first annual loss in eight years as it struggles to boost sales at a U.S. unit.

The makeup and toiletries maker fell 4.1 percent to 1,516 yen, the biggest drop since Feb. 1, as of the close in Tokyo. Net loss was 14.7 billion yen in the year ended March, compared with a forecast for net income of 10.5 billion yen, the company reported yesterday on a preliminary basis.

Shiseido said it would close some stores this year at its U.S. unit, Bare Escentuals, while the business expands marketing to rely more on “consumer-facing” promotions, television advertisements and the QVC home shopping network. The cosmetics maker will book an impairment loss of 28.6 billion yen ($287 million) on goodwill after paying $1.7 billion for Bare Escentuals in March 2010, the Tokyo-based company said yesterday in a statement.

“It’s a little bit hard to imagine the recovery strategy,” said Hisae Kawamoto, an analyst at Mitsubishi UFJ Morgan Stanley Securities Co. “They’re posting an impairment loss only three years after the acquisition, which gives a negative impression. The company says they will close unprofitable stores, but it doesn’t explain how the business is going to improve.”

The cosmetics maker is scheduled to formally report earnings for the year ended in March tomorrow in Tokyo.

Shiseido had net income of 14.5 billion yen in the year ended March 2012, less than half its profit in the fiscal year it bought San Francisco, California-based Bare Escentuals. Since announcing the offer for Bare Escentuals in January 2010, Shiseido has declined 22 percent in Tokyo trading, compared with a 22 percent climb for the broader Topix index.

Bare Escentuals’ “sales have remained lower than expected,” Shiseido said in its statement. “Bare Escentuals has taken longer than initially envisioned to grow its retail business. The gap between its sales budget and sales performance has been widening during recent months.”

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